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How relevant is Integrated Reporting?
Ana Isabel Lopes BRU-IUL, Instituto Universitário de Lisboa (ISCTE-IUL)
Jonas Oliveira BRU-IUL, Instituto Universitário de Lisboa (ISCTE-IUL)
Ana Margarida Coelho ISCTE-IUL
Área Temática: M - Ética e Responsabilidade Social
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Abstract
The present study is focused on the potential market benefits of presenting a high
quality Integrated Report. Specifically, this preliminary research assess whether such
characteristic is value relevant to investors. We investigate whether the market valuation
of traditional accounting measures (book value of equity and net income) is higher for
companies presenting an integrated report considered as "leading practice” when
compared to companies publishing a regular integrated report. Our sample includes all
the unique companies from the IIRC Examples Database. Financial and non-financial
data were collected for a period of 10 years starting in 2006. Main findings confirm that
either the book value of equity or operating income have a positive and statistically
significant impact on the market value and, as expected, those relationships are
intensified when they come from companies recognized as “best practice” in the
integrated reporting process.
Key words: Sustainability; Integrated Reporting; Value Relevance.
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1. Introduction
The International Integrated Reporting Council (IIRC) defines integrated reporting as “a
process that results in communication by an organization, most visibly a periodic
integrated report, about how an organization’s strategy, governance, performance, and
prospects lead to the creation of value over the short, medium and long-term.”
Conceptually, integrated reporting adds to the existing financial reporting model
extra information about a company’s strategy, governance, and performance. It is aimed
at providing a complete picture of a company, including how it demonstrates
stewardship and how it creates and sustains value over time.
The main benefits associated with Integrated Reporting (<IR>) disclosure are a
consequence of an opportunity for firms to communicate on and implement a
sustainable strategy, which will create value for shareholders over the long term while
contributing to a sustainable society (Eccles & Saltzman, 2011). Eccles & Saltzman
(2011) argue that it is possible to identify three classes of benefits. The first is internal
benefits, including better internal resource allocation decisions, greater engagement
with shareholders and other stakeholders, and lower reputational risk. The second is
external market benefits, including meeting the needs of mainstream investors who
want ESG (Environmental Sustainability Governance) information, appearing on
sustainability indices, and ensuring that data vendors report accurate nonfinancial
information on the company. The third is managing regulatory risk, including being
prepared for a likely wave of global regulation, responding to requests from stock
exchanges, and having a seat at the table as frameworks and standards are developed.
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Because integrated reporting still was in an initial stage, the benefits prior
identified were merely theoretical and need further empirical evidence to corroborate
them. Consequently, there are still a lot of questions open for further development,
namely: whether <IR> changed the way companies are doing business (Cheng et al.,
2014); if there is a role for the assurers in <IR> (Cheng et al., 2014); the impact of firm-
level characteristics to publish <IR> (Jensen & Berg, 2012); the extent to which <IR>
meets stakeholders’ demands (García-Sanchez et al., 2013); the analysis of the impact
made by corporate culture values on the elaboration of integrated information (García-
Sanchez et al., 2013); the <IR> and the relationship with capital markets, namely, if it
affects the cost of capital or if it attracts longer term investors (Cheng et al., 2014).
As far as we know, there is still no evidence that integrated reporting published
by firms are perceived to be value creating or value relevant to investors, who seek for
useful information to their decision takings. Prior research however provides evidence
that: i) financial analysts use corporate sustainability disclosures to make forecasts for
future financial performance (Dhaliwal et al. 2012), ii) this information is being
increasingly used by investors to analyse management quality and its implication on the
potential to grow the value of the business (Eccles et al. 2011), and, iii) companies with
reputation for sustainability leadership are higher valued by the market (Lourenço et al.
2013). Based on these findings, our research questions is: how market reacts to the
publishing of high quality integrated reports?
To answer this research question the present study focus on the potential market
benefits of Integrated Reporting, and thus it tries to assess in which way Integrated
reporting is value relevant to investors. Therefore, all the unique companies included in
the IIRC database, who publish their <IR> according to the IIRC Guiding Principles,
were selected totalizing 224 companies, covering a period of analysis of 10 years, from
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2006 to 2015. From the total sample, we stand out group with companies considered by
IIRC as “Recognized reporters”, and all the others companies are also publishing
integrated reports but classified as Non-reference. The importance of this distinction is
because “Recognize reporters” are those companies that published integrated reports
that have been recognized as leading practice by a reputable award procedure or through
benchmarking. These reporters, and their integrated reports, are thus considered as
reference, and the market will probably pay an higher attention to their performance.
To analyze whether the value of the company, perceived by the market, is
influenced by the fact that the reporter is considered by the IIRC as reference <IR>
reporter when compared to a non-reference <IR> reporter, a linear regression model
was built. The basic model relates the market value of the companies with the book
value and the operating income, and it is well supported in literature (Ohlson, 1995)
who created the model that started to be commonly used in accounting literature (e.g.
Abbody et al, 2004; Niu & Xiu, 2009; Callahan et al, 2013).
Main findings indicate that either the book value of equity (BV) or the operating
income per share (OI) have a positive and statistically significant impact on the market
value. Moreover, the market valuation of BV and OI is higher for firms publishing
integrated reports that are considered of high quality when compared with firms
publishing integrated reports without such mention.
In the following section, we review previous literature and propose the
hypothesis for testing. Thereafter, we explain our research method, report results, and
present conclusions.
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2. Literature review and development of hypothesis
Prior (scarce) studies point at an increasing concern with Integrated Reporting as well as
the impact it has on the company’s business model, on the society in general and on its
stakeholders more specifically. Companies that embraced a long-term corporate culture
of sustainability outperform their peers in terms of reputation, net income, and stock
price (Eccles et al, 2014). Besides, it has also been analyzed that the cultural, business
and social factors possibly influence the disclosure of <IR>. Concretely, prior results
obtained suggested that companies operating in countries with similar cultural systems
adopt homogeneous patterns of behavior regarding Integrated Reporting (García-
Sánchez et al, 2013). In García-Sánchez et al. (2013), this effect is explained both by the
match of the management standards, norms and practices as well as the ambition to
fulfill similar needs and expectations of the stakeholders, due to their shared culture.
They demonstrated that companies located in collectivist countries (e.g., countries were
citizens tend to think more about their actions as a members of a group than about their
individual behavior), show a greater interest in disclosing integrated information that
facilitates decision-taking by diverse stakeholders, based on the greater comparability
and usefulness of the information provided. The authors also concluded that companies
with a higher potential for business growth are less likely to disclose integrated reports
in order to diminish problems of information asymmetry. Some other studies also
looked into determinants of <IR>, but their purpose were to examine the decision to
publish an integrated report, comparing companies preparing and not preparing an <IR>
(e.g., Sierra-García et al., 2015; Vaz et al., 2016; Rivera-Arrubla et al., 2017).
Beyond determinants, as far as we know, there is a gap on the analysis of the
relationship between <IR> and investors’ expectations through the way they price
known companies publishing integrated reports. Investors and other stakeholders are
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increasingly relying on non-financial data to make investment, credit, and other
decisions, placing more pressure on management to promote corporate social
responsibility rather than focus solely on maximizing short-term profits. Eccles &
Saltzman (2011) explored the strengths and challenges of integrated reporting and
concluded at the time that that there was an increasing number of companies voluntarily
starting to produce integrated reports. Currently, some countries mandates companies
listed in stock exchanges to prepare it (e.g., South Africa, Brazil). Although the original
intention of nonfinancial reporting was to provide information of interest to
stakeholders, shareholders started paying increasing attention. Hughen et al. (2014) note
that many organizations find that financial reporting alone no longer satisfies the needs
of shareholders, customers, communities, and other stakeholders for information about
overall organizational performance. In a similar approach, and based on the recent <IR>
initiatives and the implications in the accounting education if <IR> gets widely adopted,
Owen (2013) defended the importance of improving the relevance of information for
decision-making for all stakeholders, thereby allowing greater efficiency in the
allocation of financial and other resources and in adding public value. Also Boerner
(2012) perceived that both issuers and investors get positive benefit by adopting <IR>,
reason why investors welcome the idea of <IR> to be implemented.
Notwithstanding the influence of national culture on the developing of integrated
reporting as a means of facilitating decision-taking by different stakeholders (García-
Sanchez, 2013), providers of financial capital (and executives) remain too focused on
short-term financial performance, which may hamper an organization’s ability to
implement the fundamental business model changes that are needed to provide the
impetus toward accounting for value creation, fundamental to <IR> (Cheng et al.,
2014). Even though relevant achievements have already been attained, there are still a
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lot of questions open for further development, namely: whether <IR> changed the way
companies are doing business (Cheng et al., 2014); if there is a role for the assurers in
<IR> (Cheng et al., 2014); the impact of firm-level characteristics to publish <IR>
(Jensen & Berg, 2012); the extent to which <IR> meets stakeholders’ demands (García-
Sanchez et al., 2013); the analysis of the impact made by corporate culture values on the
elaboration of integrated information (García-Sanchez et al., 2013); the <IR> and the
relationship with capital markets, namely, if it affects the cost of capital or if it attracts
longer term investors (Cheng et al., 2014).
As expressed, there is still no evidence that integrated reporting published by
firms are perceived to be value creating or value relevant to investors, who seek for
useful information to their decision takings. Prior research however provides evidence
that financial analysts use corporate sustainability disclosures to make forecasts for
future financial performance (Dhaliwal et al. 2012) and this information is being
increasingly used by investors to analyse management quality and its implication on the
potential to grow the value of the business (Eccles et al. 2011).
Based on these arguments, and considered that companies with reputation for
sustainability leadership are higher valued by the market (Lourenço et al. 2013), we will
present a characterization study about companies that are publishing <IR> and
empirically examine the following main hypothesis:
H1: The market valuation of book value and net income will be higher for firms
publishing integrated reports that are considered of high quality when compared with
firms publishing integrated reports without such mention.
3. Research Design
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3.1. Data and Sample
Data was collected from several sources. The most important, which was the
starting point for this preliminary paper, was the IIRC Example Database. This database
has 224 integrated reports of companies from about 26 different countries for the period
between 2011 and mid-2015. Because those reports follow the IIRC guiding principles,
the companies that publish them are presented as <IR> Reporters.
This set of companies was divided into two partitions: 1) one group to include
those companies that are considered as <IR> Recognized Reports according to IIRC’s
classification based on awards attributable to the report – and so, they are the
“reference”; 2) another group with all the companies publishing an <IR> but that are not
considered as reference reporters. Moreover we hand collected extra information
directly from the integrated reports presented by the companies and available for
download on the IIRC website. Accordingly, from the total 224 companies, the IIRC
distinguishes 79 companies that are considered as <IR> Recognized Reports, and these
constitutes the first group of the analysis. The other companies are included in the
second group. The criteria, according to IIRC, to define those reporters as reference is
have been recognized as a leading practice by reputable awards process or through
benchmarking.
To aim our objective other information was also hand-collected from the IIRC
Examples Database, namely, the exact year in which the 79 reporters were first
considered as reference, the country of the company and the industry sector. All these
information was completed with data extracted from the Datastream Worlscope
Database, namely the parent auditor, the market value per share, the book value per
share, the operating income, the earnings per share, the total assets, the return on equity
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and the leverage. The sample period for our research comprised 10 years, from 2006 to
2015. Therefore, 2240 observations were treated, being 790 from those considered as
reference <IR> reporters. However, some companies were not considered in the
regression model analysis due to lack of data or for being outliers. Consequently, the
final sample was re-shaped and the total observations were 2.048, from which 747
observations corresponded to <IR> reference reporters. Table 1 presents the
characterization of the sample.
Table 1 – Sample per industry
Oil &
Gas
Basic
Materials Industrials
Consumer
Goods
Health
Care
Consumer
Service
Telecom
municat. Utilities
Finan-
cials Technology
<IR> Reporters (n=2.048)
77 342 442 174 59 244 54 110 476 70
<IR> Reference Reporters (n=747)
57 146 100 70 20 87 26 50 161 30
<IR> Regular Reporters (n=1.301)
20 196 342 104 39 157 28 60 315 40
The firms considered as <IR> Reference Reporters are the ones considered by IIRC as outstanding reporters at least
one year in the period being considered, that is from 2005 to 2015. The firms considered as <IR> Regular Reporters
are the ones considered by IIRC as <IR> regular reporters at least one year in the period being considered, that is
from 2005 to 2015. The firms considered as <IR> Reporters correspond to the sum of all the <IR> Reference
Reporters and <IR> Regular Reporters for the period being considered, that is from 2005 to 2015. Concerning the
industry classification, it was attributed according the Industry Classification Benchmark (ICB).
The industry classification in Table 1 was attributed to the reporters according to
the Industry Classification Benchmark (ICB). When analysing only the <IR> regular
reporters, the Industrials is the leading category (n=342), followed by Financials (n=
315). The Financials (n=161), the Basic Materials (n=146) and the Industrials (n=100)
sectors are the main industry within <IR> reference reporters. When considering both
groups of <IR> Reporters pooled, the Financials industry is the most represented
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business sector, in line with Climent & Hollander (2014), which stated that globally, the
financial sector self-declares more integrated reports than any other sector.
3.2. Research model
Based on previous literatura (Ohlson, 1995; Abbody et al, 2004; Niu & Xiu,
2009; Callahan et al, 2013) we propose the following regression model:
MV = α0 + α1 BV+ α2 OI + ε (1)
In the model presented above, Equation 1, the MV corresponds to the market
value at the fiscal year end, the BV represents book value at the fiscal year end and the
OI stands for operating income at the same moment of time.
Based on our hypothesis, whether the market valuation of net income and book
value is higher for firms considered as regular reporters of <IR>, when compared to
firms considered <IR> reference reporters, Equation 1 was extended and modified to
Equation 2. This Equation 2 permits the coefficients of the variables BV and OI to vary
according to whether the firm is considered has reference reporter or not and is given
by:
MV = α0 + α1 BV+ α2 OI + α3 DYIR + α4 DYIR x BV + α5 DYIR x OI + LEV + SIZE +
ROE + EPS + ε (2)
where DYIR is a dummy variable which assumes the value 1 if the company is
considered a reference reporter and 0 if the company is considered a regular reporter.
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The Equation 2 is assessed with industry and year fixed effects. As usual in empirical
researches that analyses the relationship of financial and non-financial information with
the market value of the companies, some variables are used and added to the Equation
to control firm’s leverage, size, return on equity and profitability, which gives rise to
four additional variables, namely, LEV (end-of-year total debt divided by end-of year
total assets), SIZE (natural logarithm of total assets as of the end of the year), ROE
(return on equity) and EPS (earnings per share).
The expectations on the Equation 2 are the following: if the market values the
summary of accounting measures differently for <IR> reference reporters when
compared to regular <IR> reporters, then the estimates for the coefficients of the
interaction of <IR> (DYIR) with BV and with OI, namely, coefficients α4 and α5,
should be statistically significant. If the market valuation of book value (operating
income) is higher for firms considered as reference reporters, when related to firms
without it, then it is likely that α4>0 (α5>0).
To avoid scale bias, all the continuous variables are deflated by the number of
shares outstanding, turning Equation 2 to a per share basis.
4. Results
Table 2 presents the descriptive statistics for the entire sample as well as for the
two types of reporters’ samples. Through the comparison of <IR> reference reporters’
values and <IR> regular reporters’ values it is possible do conclude that both the mean
and the median are higher for the variables of the <IR> reference reporters. This is
suitable for all the variables except for the leverage level, for which the mean and
medium of <IR> regular reporters are higher. This is a good indicator since it suggests
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that companies making an effort to embrace the idea of <IR> and work hard on the
preparation of these reports can beneficiate from it. Market value per share of <IR>
reference reporters (19,57) is higher than market value per share of <IR> regular
reporters (9,35), which may indicate that the market is willing to pay more for
companies making a greater effort to disclose good <IR>. Another two important
indicators are the ROE and the EPS. The mean of the ROE (EPS) is 0,44 (1,16) for
<IR> reference reporters while for <IR> regular reporters it’s 0,19 (0,62), and the level
of leverage reference reporters (1,19) is approximately half of the level of the <IR>
regular reporters (2,21).
Table 2 – Descriptive statistics
MV OI BV SIZE ROE LEV EPS
<IR> Reporters (n=2.048)
Mean 13,08 1,17 5,95 6,52 0,28 1,72 0,75
Median 5,73 0,50 2,64 6,50 0,15 0,49 0,28
Std. Deviation 23,48 2,08 9,58 1,06 2,80 13,45 1,42
Minimum 0,00 -10,57 -1,70 1,83 -5,57 -30,05 0,00
Maximum 377,48 22,32 95,11 9,36 104,00 400,69 22,45
<IR> Reference Reporters (n=747)
Mean 19,57 1,85 7,44 7,13 0,44 1,19 1,16
Median 10,00 1,05 4,56 7,09 0,15 0,61 0,69
Std. Deviation 31,42 2,65 9,99 0,94 4,53 3,07 1,72
Minimum 0,00 -3,18 -1,70 4,43 -5,57 -30,05 0,00
Maximum 377,48 22,32 88,25 9,36 104,00 33,67 17,42
<IR> Regular Reporters (n=1.301)
Mean 9,35 0,78 5,01 6,17 0,19 2,21 0,62
Median 3,48 0,32 1,58 6,14 0,15 0,47 0,228
Std. Deviation 16,24 1,53 9,23 0,96 0,78 17,43 1,10
Minimum 0,00 -10,57 0,00 1,83 -2,00 0,00 0,00
Maximum 216,85 10,79 95,11 9,02 20,82 400,69 22,45
The firms considered as <IR> Reference Reporters are the ones considered by IIRC as outstanding reporters at least
one year in the period being considered, that is from 2005 to 2015. The firms considered as <IR> Reporters are the
ones considered by IIRC as <IR> regular reporters at least one year in the period being considered, that is from 2005
to 2015. The firms considered as <IR> Total Reporters correspond to the sum of all the <IR> Reference Reporters
and <IR> Reporters for the period being considered, that is from 2005 to 2015. Regarding the variables, the MV is
the market value per share at the fiscal year-end, BV corresponds to the book value of equity per share at the end of
the year, OI is the operating income per share of the year, SIZE is the natural logarithm of total assets at the end of
the year, ROE corresponds to the return on equity, LEV is the leverage calculated as the end-of-year total debt
divided by end-of-year total assets and finally the EPS corresponds to the earnings per share.
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These outcomes are in line with Ott (2016), who stated that long term oriented
investors are more likely to invest in firms which provide integrated reports. This
implies an increase in price that investors are willing to pay for companies disclosing
<IR>, therefore an increase in the market value because investors expect to extract
better benefits. These findings are also consistent with Eccles et al. (2014), who found
that companies embracing a long term corporate culture of sustainability outperform
their peers in terms of reputation, net income, and stock price. Additionally, Eccles &
Saltzman (2011) also identified three classes of benefits for companies preparing <IR>,
namely, some better resource allocation decisions, increased external market benefits
and better management of regulatory risk. Analysing the results of table 3 indeed the
financial situation of <IR> reference reporters, those putting on more effort in the
report, looks better than <IR> regular reporters. Additionally, it is expected that the
major international companies (larger SIZE) have an extra incentive to produce this
reports since, according to Morros (2016), the IIRC most remarkable feature at its
incorporation was the extraordinarily high-powered character of its governing body, its
Council. Among its 40 members were the heads of the IASB, FASB, IFAC and IOSCO,
the CEOs of the Big Four, the heads of major British professional accountancy bodies,
and the CFOs of major multi-internationals, such as, Nestlé, Tata and HSBC. Given the
fact that big companies are embracing this change, then other big companies will feel
forced or threatened and so enforced to embrace it too.
Table 3 bring out the Pearson correlation analysis for the continuous variables
included in the regression Equation 2. The market value is positively and statistically
related with the BV, the OI, the EPS and the SIZE. This implies that when MV
increases by 1, then the BV will increase by 0,766, the OI will rise by 0,799, the EPS
will increase by 0,818 and the SIZE will grow in 0,297. On the other hand the LEV and
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ROE have a weak statistical relation with the MV. Specifically, every time that MV
increases by 1, the impact on ROE is an increase of 0,062. Regarding the LEV it has a
negative relation with MV which means that when MV increases by 1, the leverage
level will decrease 0,024. This relation is in accordance with the expectations since the
lower the level of debt, usually, the better the economic situation of the company.
The correlations achieved are supported by the expected benefits that Morros
(2016) identified in its study, which stated that <IR> transforms decision-making
process in a way which aligns benefits to the business, society and the environment, as
allowing a better risk identification and mitigation. By applying these benefits to the
business, companies are able to better organize and extract benefits from its activities,
processes and outcomes.
Table 3 – Correlation matrix
MV BV OI EPS SIZE ROE LEV
MV 1 - - - - - -
BV ,766 1 - - - - -
OI ,779 ,587 1 - - - -
EPS ,818 ,768 ,686 1 - - -
SIZE ,297 ,388 ,338 ,312 1 - -
ROE ,062 -,029 ,068 ,047 -,005 1 -
LEV -,024 -,029 -,026 -,023 ,031 ,194 1
The firms considered were <IR> Total Reporters which correspond to the sum of all the <IR> Reference Reporters
and <IR> Reporters for the period being considered, that is from 2005 to 2015. Regarding the variables, the MV is
the market value per share at the fiscal year-end, BV corresponds to the book value of equity per share at the end of
the year, OI is the operating income per share of the year, SIZE is the natural logarithm of total assets at the end of
the year, ROE corresponds to the return on equity and LEV is the leverage calculated as the end-of-year total debt
divided by end-of-year total assets.
Table 4, Panel A, comes to light the summary of the regression analysis of
Equation 2. It is possible to conclude that 78,1% of the total variation on MV
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(dependent variable) is explained by the variation of the explanatory variables (BV, OI,
SIZE, LEV, ROE, DYIR, DYIR x OI, DYIR x ROE) of the sample being considered.
The ANOVA analysis is shown up in Table 4, Panel B. Once the significance
level (Sig.) is minor than 0,05, it means that in Equation 2 there is at least one
coefficient (β) different from 0. This fact implies that since one or more coefficients are
different from 0, then from all the dependent variables (BV, OI, SIZE, LEV, ROE,
DYIR, DYIR x OI, DYIR x ROE) being considered there is at least one that can explain
the market value.
Table 4 – Model summary and ANOVA
Panel A: Model summary
R R Square Adjusted R Square Std. Error of the
Estimate
,884a ,781 ,781 11,01
Panel B: ANOVA analysis of equation 2
Sum of Squares Df Mean Square F Sig.
Regression 881.549,006 8 110.193,626 908,376 ,000b
Residual 246.498,712 2.032 121,308 The firms considered were <IR> Total Reporters which correspond to the sum of all the <IR> Reference Reporters
and <IR> Reporters for the period being considered, that is from 2005 to 2015. Concerning the dependent
variables, the MV is the market value per share at the fiscal year-end, BV corresponds to the book value of equity
per share at the end of the year, OI is the operating income per share of the year, SIZE is the natural logarithm of
total assets at the end of the year, DYIR (an indicator variable that equals 1 if the firm is considered as <IR>
reference reporter at least one year in the sample period and 0 otherwise, that is if the firm is only considered as
<IR> regular reporter in the sample period), ROE corresponds to the return on equity and LEV is the leverage
calculated as the end-of-year total debt divided by end-of-year total assets.
Table 5 presents the main results of our regression analysis of Equation 2,
namely, the parameters (β) estimated by the Ordinary Least Square method (OLS).
Except for LEV, the only dependent variable that does not explain the MV (p>0,05), all
the remaining dependent variables are important to explain the MV. Particularly, the
BV (coefficient =1,13; p value=0.000) and the OI (coefficient =4,60; p value=0.000)
are positive and statistical significant, both positively impacting the MV.
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Concerning our hypothesis, the outcomes of table 5 show that the MV suffers
different variations depending on the book value and the net income of firms considered
as <IR> reference reporters. The coefficient estimated for the interaction of <IR>
Reference reporters with BV (coefficient: 0,20; p value =0,04) and with OI (coefficient:
2.72; p value =0,00) are positive and statistically significant, which means that on
average the book value and net income of companies publishing a high quality
integrated report have a higher value perceived by the market.
Table 5 – OLS regression analysis
Variables
Unstandardized
Coefficients
Standardized
Coefficients t p-value
β Std.
Error Beta
(Constant) 7,71 1,64 4,69 0,00
BV 1,13 0,03 0,46 32,61 0,00
OI 4,60 0,17 0,41 26,61 0,00
SIZE -1,19 0,27 -0,05 -4,46 0,00
ROE 0,00 0,00 0,04 3,47 0,00
LEV 0,00 0,00 0,00 -0,30 0,77
DYIR -1,53 0,83 -0,02 -1,85 0,07
DYIR x BV 0,20 0,10 0,05 2,02 0,04
DYIR x OI 2,72 0,40 0,16 6,79 0,00
The firms considered were <IR> Total Reporters which correspond to the sum of all the <IR> Reference Reporters
and <IR> Regular Reporters for the period being considered, that is from 2005 to 2015. Concerning the dependent
variables, the MV is the market value per share at the fiscal year-end, BV corresponds to the book value of equity per
share at the end of the year, OI is the operating income per share of the year, SIZE is the natural logarithm of total
assets at the end of the year, DYIR (an indicator variable that equals 1 if the firm is considered as <IR> reference
reporter at least one year in the sample period and 0 otherwise, that is if the firm is only considered as <IR> regular
reporter in the sample period), ROE corresponds to the return on equity and LEV is the leverage calculated as the
end-of-year total debt divided by end-of-year total assets.
Additionally, one could analyze the standardized coefficients in order to support
the previous statement. The standardized coefficients expurgate the unit effect by
adjusting the estimate coefficient to permit the variables to be comparable. Since the
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standardized coefficient of OI and BV are 0,16 and 0,05 respectively the statement is
reinforced.
Based on prior results, our Hypothesis is supported. The findings indicate that
the market valuation of BV and OI is higher for firms publishing integrated reports that
are considered of high quality when compared with firms publishing integrated reports
without such mention. Moreover, either the BV or the OI have a positive and
statistically significant impact on the market value. It was also realized that <IR>
reference reporters disclose a better financial situation when compared to <IR> regular
reporters, as on average the MV, the OI, the BV, the SIZE, the ROE and the EPS are
higher for the reference reporters. Additionally, the leverage level is higher for <IR>
regular reporters than for <IR> reference reporters.
5. Conclusions
Reporting is a crucial part of every business activity. It is a strong tool of
communication between the company and the stakeholders, particularly the investors.
Reporting is also the channel that companies use to disclose useful information to the
society. Taking this into account it is crucial to select adequate information to release
and present it in a relevant way to add value to the stakeholders. Given the concept of
reporting, it is fundamental that the reports can be comparable and understandable in
different contexts. Indeed, the major accounting standard setters have made substantial
development in improving the transparency of many areas within financial reporting.
Other settings boards are requiring or advising new type of communication tools
beyond financial reports.
19
As world is dynamic and it is constantly changing, then also the business
reporting must evolve to accomplish and answer the progressive needs of society. That
is when <IR> starts to play an important role. Definitely, <IR> is the logical
consequence of the growth of sustainability and corporate responsibility concerns.
Based on organisational vision and values, an <IR> combines diverse dimensions of
organisational performance, to demonstrate how organisation’s vision and values are
internalized and externalised outside the organisation. These aspects not only increase
the benefits for the company as well as impact the society, in a way the market values
more the company. In this context, the purposes of this preliminary research was to
demonstrate the relationship of <IR> on the perceived market value of companies that
publish the best integrated reports.
To aim this objective, our empirical research was performed based on the
hypothesis that the market valuation of book value and net income will be higher for
firms publishing integrated reports that are considered of high quality when compared
with firms publishing integrated reports without such mention. The conclusions attained
evidenced that traditional measures of accounting are value relevant to market
participants, but book value and net income of <IR> Reference Reporters are both even
more relevant.
To conclude, the results achieved in this study may define three benefactors: the
stakeholders, the companies and the <IR> supporters. Our results suggest that
companies can benefit from increases in their market value, and the higher the effort to
produce a reference report, the greater the increment on the MV. So, <IR> can
beneficiate the society in general, not only by the increase of the market value but also
by the way relevant information is disclosed. Note these conclusions are valid for all
companies producing <IR> either they are considered as reference <IR> or not.
20
However, if the company is considered as a reference <IR> reporter, then all the effects
are even greater.
This research is a preliminary research. We are developing an extending study
on <IR> to include more companies based on updates of IIRC Examples Database and
to control for other firm-level (e.g., board characteristics and assurance) and country-
level (e.g., economic indicators, voluntary vs mandatory <IR> report) characteristics.
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